This
matter is before the Court on Plaintiff Regions Bank's
Motion for Appointment of a Receiver (Doc. 12), and
Defendants The Fausz Group Co. ("Fausz Group") and
Aray, Inc.'s ("Aray") Joint Motion to Set Aside
Entry of Default and Motion for Leave to File a Responsive
Pleading out of Time (Doc. 20). The issues are fully briefed
and ready for disposition. For the following reasons, the
Court will grant both motions.

Background

On
February 8, 2017, Regions Bank filed a complaint seeking
judgment in its favor on three promissory notes ("the
notes") on which it claims Defendants have defaulted,
and appointment of a general receiver for Defendants and
certain property belonging to Defendants (Doc. 1). The case
was initially assigned to the Court's Eastern Division,
and the Clerk of the Court issued summonses (Doc. 1). On
February 9, 2017, the Court reassigned the case to its
Southeastern Division, assigned it a new case number, and
directed Regions Bank to amend its complaint to allege facts
establishing the citizenship of each of the parties to the
case (Docs. 4-5). On February 14, 2017, Regions Bank amended
its complaint (Doc. 7). On February 16, 2017, Regions Bank
returned unexecuted the summonses which had been issued on
February 8, 2017 (Doc. 9); and on February 17, 2017, the
Clerk, at Regions Bank's request, issued new summonses to
reflect the action's new case number and its reassignment
to the Southeastern Division (Doc. 8). On March 28, 2017,
Regions Bank served Defendants with the amended complaint and
corrected summonses (Docs. 10-11). On April 11, 2017, Regions
Bank filed a Motion to Appoint Receiver, arguing that the
notes are in arrears, that it appears Defendants have
abandoned property securing the notes, that the collateral is
at risk of imminent loss, and that it is entitled to
appointment of a receiver to take charge of the property in
order to protect its collateral (Docs. 12-13). On April 19,
2017, Defendants had not answered or otherwise responded to
the complaint, and Regions Bank sought an entry of default
from the Clerk of the Court, which was granted on April 21,
2017 (Docs. 14-15). The case was then reassigned to the
undersigned (Docs. 16-17).

On
April 28, 2017, Defendants, through counsel, filed the
instant motion to set aside the Clerk's entry of default
and for leave to file its response out of time (Doc. 20-21).
According to Defendants, Raymond and Annette Fausz ("the
Fauszes") are full owners of Aray, part-owners of the
property at issue in this case, and former owners of Fausz
Group. The Fauszes claim that, in April 2016, they entered
into an "Acquisition and Interim Operating Plan
Agreement" ("the Agreement"), whereby William
Turner, Jr. and others acquired full ownership of Fausz
Group. According to the Fauszes, the Agreement provided that
Mr. Turner, among others, would be obligated to indemnify and
defend the Fauszes and Aray against claims with respect to
Regions Bank and the notes. In Defendants' view, the
parties anticipated that, under the Agreement, the Fauszes
and their companies would be released from all debts, liens,
and obligations they owed to Regions Bank (Doc. 21).

In
support of their Motion, Defendants contend that, when they
were served with the amended complaint, Mr. Fausz tendered
the document to Mr. Turner, who assured him he would retain
counsel to represent Defendants. Mr. Fausz claims that he
first learned Mr. Turner had not secured counsel, as he had
promised, when Mr. Fausz received an April 25, 2017
correspondence from the Court relating to the motion for
appointment of a receiver. Defendants further argue that they
have meritorious defenses to Plaintiffs claims, including
whether certain disclosures and financial statements were
properly prepared, examined, and disclosed before the Fauszes
entered into the notes. Finally, Defendants argue that
Regions Bank will not be prejudiced if the clerk's entry
of default is set aside, as Regions Bank moved for
clerk's entry of default one day after Defendants'
responsive pleadings were due, Defendants promptly retained
counsel upon learning counsel had not entered on their
behalf, and no other pleadings have been filed in this case
(Id.).

In
response, Regions Bank argues that Defendants have not stated
good cause for their failure to timely respond to its amended
complaint (Doc. 24). More specifically, Regions Bank contends
that Defendants were placed on notice of this lawsuit, no
later than February 22, 2017, when Regions Bank served them
with copies of the amended complaint, albeit with the
original, incorrectly captioned summonses; that Defendants
were again served with the amended complaint on March 28,
2017, when Regions Bank effectuated service with the
corrected summonses; and that Defendants nevertheless failed
to timely file a responsive pleading. Regions Bank also
questions whether the purchase called for in the Agreement
has closed, and whether the Fauszes retain responsibility for
Defendants' activities. Regions Bank notes that the
Fauszes are identified as the only officers and directors in
Defendants' most recent biennial reports, filed in late
2016, or after the Agreement was signed; and that, on June
15, 2016, Mr. Fausz signed-as Defendants' president-an
"Extension Agreement" with Regions Bank on June 15,
2016. In Regions Bank's view, Mr. Fausz was intentionally
derelict and grossly negligent by relying on Mr. Turner to
retain counsel in this case. Regions Bank further argues that
Defendants have not set forth any meritorious defenses, other
than a denial of liability on the notes and the amounts
allegedly due thereunder, and "standard catch-all"
defenses. Regions Banks contends it will be prejudiced should
the clerk's entry of default be set aside and Defendants
actively resist its efforts to appoint a receiver, as the
premises would be placed in further jeopardy (Id.).

In
reply, Defendants assert that Mr. Fausz forwarded the amended
complaint to Mr. Turner both times it was served upon him.
They also allege that Mr. Fausz attempted to contact Regions
Bank's counsel to discuss the matter, and sought
unsuccessfully to negotiate a repayment plan (Doc. 25).
Defendants reiterate their argument that they have
meritorious defenses, again pointing to alleged failures in
the preparation, examination, and disclosure of information
relating to the notes and the value of the business they
acquired though the notes. They further contend that Regions
Bank will not be prejudiced by setting aside the entry of
default, claiming that Mr. Fausz has complete control of the
property, and that the property is fenced or gated and has
been secured with chains and locks (Id.).

Discussion

A
district court may set aside an entry of default for good
cause. Fed.R.Civ.P. 55(c). When deciding whether there is
good cause to set aside a default judgment, the Court must
consider whether the conduct of the defaulting party was
blameworthy or culpable; whether the defaulting party has a
meritorious defense; and whether the other party would be
prejudiced if the default were excused. Johnson v. Dayton
Elec. Mfg. Co.. 140 F.3d 781, 783-84 (8th Cir. 1998). In
determining whether the defaulting party was blameworthy or
culpable, courts look to whether the party intentionally
delayed the proceeding or disregarded deadlines, or whether
the party failed to meet deadlines through mistake,
carelessness, or inadvertence. Id. The Court is also
mindful of the strong policy favoring judicial decisions on
the merits rather than resolution of cases through default
judgment. See United States v. Harre,983 F.2d 128,
130 (8th Cir. 1993) ("Default judgments ... are not
favored by the law.").

Upon
due consideration of the arguments of the parties, the Court
will set aside the Clerk's entry of default. The Court
finds that Defendants' conduct did not evidence
intentional delay or disregard of the Court's deadlines.
Johnson, 140 F.3d at 783-84. Rather, it appears that
Defendants' failure to timely respond to Regions
Bank's complaint was the result of Mr. Fausz's
reliance on Mr. Turner's assurance that he would retain
counsel for Defendants' in this case. Notably, Defendants
promptly sought to correct this oversight once it was
discovered. Id. It also appears that Defendants may
have a meritorious defense to Plaintiff's claims, i.e.,
that the notes are not enforceable in light of alleged
misrepresentations and/or failures in the preparation,
examination, and disclosure of information relating to the
notes and the value of the collateral securing them.

Conclusion

Accordingly,
for the aforementioned reasons and after a telephone
conference with counsel, IT IS HEREBY ORDERED that the
Defendants' Motion to Set Aside Clerk's Entry of
Default and for Leave to File Answer out of Time (Doc. 20) is
GRANTED.

IT IS
FURTHER ORDERED that Plaintiffs Motion for Appointment of a
Receiver (Doc. 12) is GRANTED. A receiver ...

Our website includes the first part of the main text of the court's opinion.
To read the entire case, you must purchase the decision for download. With purchase,
you also receive any available docket numbers, case citations or footnotes, dissents
and concurrences that accompany the decision.
Docket numbers and/or citations allow you to research a case further or to use a case in a
legal proceeding. Footnotes (if any) include details of the court's decision. If the document contains a simple affirmation or denial without discussion,
there may not be additional text.

Buy This Entire Record For
$7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.